In: Accounting
Firm B, a calendar year, cash basis taxpayer, leases lawn and
garden equipment. During December, it received the following cash
payments. To what extent does each payment represent current
taxable income to Firm B?
In cash basis of taxation the income of an individual is taxable as and when the amount is actually received even though the amount is not earned like in accrual basis of taxation.
In the given question
A.repayment of loan by an employee
The loan returned is not an income but the interest amount paid in excess of the loan amount is the income earned.
The amount of $38 is taxable income.
B.acceptance of deposit from customer
The amount accepted as a deposit which should be repaid after a period of time is not an income.
No income is earned here.
C.loan from bank
Loan is not an income but it is a liability to be repaid.
No income is earned here.
D.prepaid rent accepted
In cash basis the rent is treated as an income in the year in which it is actually received even though it is for the future years unlike in accrual basis of accounting where it is recognized only in the year for which it actually belongs to.
Total amount of $1258 is to be treated as income.